Walmart’s Minor Act of Redistribution

Walmart’s pay increase, purportedly inspired by the recent cut in the corporate tax rate, is a little less than real largess. The retailer’s extra spending on hourly wages is just a sliver of what it could save in taxes, though — and a tight labor market is likely to have been a more potent driver.

Walmart will raise its hourly rate for starting staff to $11 in the United States, the third upward move in three years. Assuming a 40-hour workweek, the $300 million increase the company expects in its wage bill would suggest fewer than one in 10 workers in the United States will benefit directly. Put another way, the raise is equivalent to just 0.3 percent of the company’s sales and administration costs.

Moreover, the reduction in the corporate tax rate to 21 percent from 35 percent means that Walmart’s chief executive, Doug McMillon, in theory, had room to give away much more. The company is forecast to make $20.3 billion of pretax profit in 2018. Around three-quarters of that comes from the United States, which suggests a tax savings of $2.1 billion. Factor in the one-off bonuses the company is paying to some staff, at a total cost of $400 million, and Walmart is giving back only around one-third of what it could save in taxes.

In fairness, there are other demands on Walmart’s tax windfall. Competition from rivals and the online behemoth Amazon are going to call for investment in stores and lower prices. On the same day the company trumpeted its pay rise, it revealed the closure of some members-only Sam’s Club stores. So competitive is the market that Morgan Stanley reckons in most cases only 50 percent of what retailers save in tax will make it back to investors.

The wonder, even so, is that Walmart did not do more. It said in 2016 that it was investing $2.7 billion in staff over two years, well before a tax cut and such a low jobless rate. Now that unemployment is at its lowest since 2000, the company would probably have needed to raise wages anyway. Neither tax nor benevolence has much to do with this minor act of redistribution.